Import Barriers Against Exports From Developing Countries example essay topic

Asian Financial Institutions and Markets The Asian financial markets can be compared to the economic philosophy of mercantilism, which is regulated commerce to produce a favorable balance of trade. Governments regulate production techniques to ensure the quality of exports, and in general, subsidize production in their exporting industries. Tariffs can be high on imported manufactured goods and low on imported raw materials. The state exercises much control over economic life in these environments, chiefly through corporations and trading companies. Production is carefully regulated with the object of securing goods of high quality at a low cost, thus enabling the nation to hold its place and wealth in foreign markets.

Asian countries have practiced mercantilism and protectionism under the guise of complex wholesale and retail marketing systems (Baker 13). The economic performance of the four Asian economies - Hong Kong, Korea, Singapore, and Taiwan can be attributed to some of these practices. There is a significant degree of overlap between the government and the markets, suggesting that a broad-based approach is useful in understanding the nature of the Asian economy (Chowdhury 42). The government can control and regulate the financial system in order to finance development activities. The government acts as an internal capital market funding business sectors and industries. From a historical perspective, Korea was one of the poorest countries in world after experiencing two wars, World War II and Korean War.

Food shortages that led them to heavily rely on the foreign aid, and to a yearly per capita income below the poverty level, this country is considered a successful newly industrializing economy. Korea has been transformed from its underdeveloped agricultural economy to a leading newly industrializing country. Countries that can be described as newly industrialized are more dynamic with a production structure corresponding to shifts in international division of labor, and where manufacturing plays an important role (Chowdhury 2). There have been many explanations for Korea's successful story. Among those, the strong role of government would be probably the most important one. At the same time, this would be also responsible for current recession.

After Koran war, the government in fact had no sense of direction and due to the unstable political situation, the country did not have specific economic policy. The government set economic development as the top national priority and recognized the financial system in support of economic development plan. To achieve this purpose, it focused its policies mainly on export expansion moving its emphasis from import substitution. The result was considered quite successful for economic growth. The success of the expansion was due primary to three factors. The first was a favorable international economic environment, which saw total world imports expand.

This boom in imports reflected the fact that the industrialized economies had not yet erected import barriers against exports from developing countries and were active importers of cheaper goods from countries such as Korea. A second significant factor was the Korean government's policy of promoting exports. The government introduced a number of fiscal and financial incentives. A third factor was Korea's abundant and highly productive labor force. This gave Korea a strong comparative advantage in producing labor intensive products and provided the impetus for the notable expansion for exports (Chowdhury 51).

In addition to inflow of foreign capital, the government faced allocation of capital with using its financial system. The loan decisions of commercial banks were heavily influenced by political interference. Loan decisions in Korea mostly were affected by political interference rather than bank themselves until recent time. In the economic development, the government's creation of economic segments of business takes critical role.

The Bank of Korea, in its role as the country's central bank, determines the allocation of loans, interest rate level and the supply of money but the decision making in these area is controlled by the Minister of Finance. In other words, it was government's responsibility generating monetary and fiscal policy, not by the central bank. Since foreign aid started to decline the government reformed interest rates. The reform successfully attracted private saving. In addition, the financial reform contributed to a massive inflow of foreign loans due to the existence of gap between domestic and international interest rate and since the Korea Development Bank guaranteed to pay back to foreign lender, the inflow of the loans were accelerated.

In addition, this gap of interest rate was used to promote export expansion, which was the economic priority. Therefore, an increase in domestic savings and huge inflow of foreign borrowings had positive effect on economic growth in Korea due to an increase in capital accumulation. Controlling exchange rate is another good example to describe the effect of government's role on Korean economic development. Economic growth in this period was result by an increase in export and output and as well as price level.

With this historical review of one of the Asian countries and their development it is important to understand how the financial institutions involved operate. even though they were blamed as a major cause of Asian financial crisis happened in Korea bringing the country to the brink of insolvency, as well as weak banking system, in fact, they could be victims of misleading government policy. The long term close relationship between government and big business creating rent and using them with unbalanced support between industries had worked well in the early stage of development, but as stated early, rent can bring corruption of bureaucracy or industries also, since it is caused by inefficiency. Allocation of financial resources is not an easy job, but this would be best time for Korea to consider again about the efficiency of closed relationship between the government and businesses while the country is restructuring its economy system.